Many people believe that refinancing through the bank is the only option they have. In reality, there are plenty of reasons to never refinance with a bank!
If you follow the trends year over year, you'll likely notice that during times of low interest rates, banks do a larger percentage of the total volume. As rates increase, the trend changes to brokers and lenders. This trend is easily explained. Clients tend to go to the bank for refinancing, while they tend to use mortgage companies for their purchases. Clients feel that the bank is familiar with their financial situation, or that they will get a better rate or a smoother process because their institution values the client/company relationship. Sadly, this is often not the case. We did some research and discovered the top five reasons to never refinance with a bank! Don't let yourself get sucked into thinking it's your only option.
The concept that your bank will offer you a better interest rate is a myth. There are several reasons why this is not the case. First, banks have more layers than your typical mortgage company, leading to more overhead costs. Second, banks know that most customers go to their bank for refinancing and take advantage of that by offering higher rates. This lets the bank appear as though they're offering 'purchase specials', when in reality this deal is only relative to the bank's normal rate rather than the average rate. Third, many banks will offer discounts for increasing relationships, such as setting up auto-pay or opening a checking account. Don't be fooled -- these discounts are often necessary to even get you down to the normal market rate. Finally, banks usually have higher fees than mortgage companies do.
Many people believe that their relationship with their bank is just as valuable to them as it is to you. You know the people at your branch and they know you. Unfortunately, the people processing your loan are not the people you have a relationship with. When it comes to mortgages in the bank environment, any individual loan is not that important in the grand scheme of things. There isn't an underwriter or processor who has not heard every sob story -- they're completely numb them. Every loan is a rush, meaning no time is taken to understand your specific situation. At a mortgage company, the staff works for the client rather than the bank. They take the time to learn about your situation and get the best loan available for you.
There's a common misconception that your bank already has all the information about you and thus will need less from you. In reality, banks often require more paperwork than mortgage companies do. Even though every loan is unique, banks tend to standardize the process. While this makes sense from a consistency standpoint, it wreaks havoc on complex loan situations. When you provide more than what is needed, the loan process becomes ridiculously complicated, costing time and sometimes leading to a good loan being declined. On the other hand, mortgage companies tailor their loan documents to the borrower's specific situation, resulting in a much more efficient process.
This is an area where mortgage companies have a huge advantage for several reasons. First, they can pick the best of several mortgage lenders for your specific situation. A bank's range is often limited to their existing product set and their interpretation of the mortgage guidelines. Second, mortgage brokers are constantly being solicited to sell mortgages from various companies. To earn a broker's business, mortgage companies must always compete for business, which guarantees the client a competitive term mortgage and often better service throughout the process.
Speed and Flexibility
Flexibility is important in the lending process. The loan process often requires quick responses to various conditions to avoid costly delays and possible rate extension locks. Most mortgage brokers do not work standard 9-to-5 hours, allowing for greater flexibility to handle various situations and conditions that may arise. Additionally, many banks prioritize purchases over refinances. Typically the refinancing process takes 15 to 30 days longer than purchases. Banks are aware of this and will often require longer lock periods on their refinances, which adversely affects the interest rate of the loan. Obviously, every mortgage company and bank uses a different approach, and while these generalizations hold true in most cases there are always exceptions. That said, the customer satisfaction ratios drastically favor using a mortgage company for refinancing. Have you refinanced with a bank or mortgage company? How was the process for you? Tell us about it in the comments below!